Cape Town – Market reaction to President Jacob Zuma’s instruction that Finance Pravin Gordhan immediately return from a post-Budget investor roadshow in the UK and US, shows that the bigger picture is not taken into account, said emerging market economist Peter Attard Montalto.

Peter Attard Montalto, emerging markets economist, Nomura

In a company note issued late on Monday, Montalto (from the Japanese bank Nomura) said the markets have focused too much on the National Treasury and that a Cabinet reshuffle, which is widely expected, is also about Zuma wanting to assert loyalty and rid the Cabinet of detractors, such as certain SACP members.

“We should not forget that the whole point of a reshuffle is bigger,” Montalto said.

On Monday, markets reacted swiftly to the news, with the rand losing more than 3% to R12.84 in overnight trade in New York. By 21:43 the local unit was trading at R12.82/$. Before the Gordhan bombshell, the rand raced to an almost 2-year-high of R12.31 to the greenback.

“The market focuses too much on National Treasury. If it (a cabinet reshuffle) happens it will be messy. But the markets forget the bigger context.”

Gordhan, who left the country on Sunday to represent South Africa at the roadshow is due to return to the country on Tuesday. His deputy Mcebisi Jonas, who was set to join the delegation in the US later on Tuesday, won’t leave South Africa.

Montalto opines that a Cabinet reshuffle would “surely” have been discussed during a meeting of the ANC’s National Working Committee late on Monday, although it was not officially on the agenda.

The SARB’s monetary policy committee meets on Thursday to discuss its policy decision regarding interest rates. Analysts have had mixed views as to whether interest rates, currently at 7%, would be retained at the same level or adjusted downwards.

“Today is a reminder that risks are there. Although the SARB won’t mention this specifically (at its meeting on Thursday) they do worry in my view about political risk that is factored into the currency, as well as about second round effects, such as on inflation.” – Fin24